Family businesses: Preparing for succession
GB asked some of the UK's business dynasties for their tips on running a successful family firm
Research suggests up to 50% of the UK private sector is employed by family businesses. And while such dynasties have their own distinctive and often complex set of challenges, they also boast a unique dynamic that can help them gain an edge over their rivals.
For Rachel Clacher, going into business with her brother was a no-brainer. “I can’t imagine working with anyone else,” she says. Clacher set up Moneypenny, a telephone answering company, in 2000. It now serves over 3,000 businesses and won the Queen’s Award for Innovation in 2008.
Nick Lawton, group managing director of Lawton Communications Group, believes that nothing beats the bond between family members when it comes to resolving disputes. “The straight talking you can have with a sibling is invaluable,” he says.
Lawton came to take over the family business after helping two friends set up a digital media agency in Sydney. “I always appreciated the mammoth effort Dad had put into the business, but that experience really brought it home,” he says.
After heading back to the UK with his brother, Lawton begun his induction into the family firm in early 2004, but didn’t become managing director until mid-2007. His brother left the business to return to Australia earlier this year. But for Lawton’s father, the knowledge that the business was in safe hands was a blessing. “Blood is thicker than water, and in business trust is very important. It was definitely easier for Dad to hand over the reins to his sons rather than an outsider,” he explains.
Passing it on
Lawton ‘s father is just one business owner who felt more comfortable relinquishing control to his offspring. For many, passing a business on to children is a given. This level of assumption can itself create problems, but the succession process need not be traumatic. By tackling the issue well in advance, the expectations of all those involved can be managed accordingly.
Laura Tenison MBE, founder of maternity and children’s wear retailer JoJo Maman Bébé, which now has a turnover of £18.5m, says she would be disappointed if her two small children expressed no interest in the family business as she has no plans to exit. “I have no intention to sell,” she says. “I am growing the business for longevity.”
Conversely, Clacher says she hasn’t even considered the possibility of passing on Moneypenny to her daughters. “It hasn’t even crossed my mind that they would want to join the company,” she admits. But unlike Tenison, Clacher doesn’t necessarily believe her own future lies in the family business, let alone that of her daughters. “It doesn’t turn me on like it used to,” she admits. “We’ve always assumed Moneypenny is today’s project; we don’t know what tomorrow will bring.”
For Jo Pearson, it was inevitable that he would take over the business his father built more than 60 years ago.
“I had worked in the family business since I was six or seven years old,” he recalls. Yet the ownership of Pearsons in the long term is uncertain. “I have a 20-year-old daughter and she has no interest in coming into the business,” Pearson laments. “Should I hang on to it for another five or 10 years in case she changes her mind?”
At sweet factory Swizzels Matlow, the family dynamic is even more complex – there is not one family running the company, but five. The two joint managing directors are chosen from the two main families, but one of the biggest issues was the lack of regulation about how the next generation were handled.
“If I were to give you any advice, it would be to always ensure that with every new family that comes into the business, to make clear rules from the start about how you’re going to treat the next generation,” warns Andrew Matlow, one of the confectionery giant’s joint managing directors.
Succession is a notoriously slippery subject among family businesses. But it is important that discussion is separated into ownership and management. While it is possible for ownership of the firm to stay in the family’s hands, outside management may need to be brought in to run the company on a daily basis. In such circumstances, family firms may need to consider the prospect of allotting equity to ‘outsiders’.
“My father will be in his grave before he lets anyone else have shares in our business,” admits Pearson. Lawton agrees that handing over equity is unnecessary. “Instead of diluting shares and causing potential problems further down the track, it’s cleaner and more cost effective to retain 100% shareholding centrally,” he says.
Lawton Communications remains fully owned by one person, Lawton’s father. The managing director does not have a single share in the business he runs. “It sends a powerful message to staff,” he asserts. “This way everyone in the business is in the same boat. The staff know I am not sat here with my feet on the desk waiting for the dividends to roll in.”
Lawton has tackled the equity problem by incentivising staff through bonus schemes – last year 30% of the group’s profit was shared among staff.
Adam Walker, a partner at law firm Farrer & Co, agrees that it can help to retain shares centrally. “The problems will not necessarily arise now, but you have to consider the future. You don’t want to create a rod for future generations’ backs.”
On top of the unique challenges, family firms face the usual business issues. For Tenison, for example, it’s fluctuating currencies, since JoJo Maman Bébé deals in four different ones. She is also keen to cut costs and has renegotiated monthly tenancy deals with 25% of her landlords.
Clacher, however, claims the slowdown has helped her business, as companies are keen to reduce headcount and outsource. “This current climate is good for us, because people are looking to cut costs and reduce overheads,” she explains.
Meanwhile, the biggest problem faced by Swizzels Matlow is the soaring costs of raw materials as they can’t adjust their prices. “A 10p chew bar has to be 10p; 12p doesn’t have the same ring to it,” says Matlow.
Yet for all the extra challenges, there was never any doubt over him working in the family firm. “Why look a gift horse in the mouth?” he says. “Your Dad owns a sweet factory. It doesn’t get much better than that.”